Avoiding Risk While Driving Returns: A Sustainable Investing Strategy Most Investors Overlook

Key Takeaways

• Sustainable investing protects and grows returns: long-term risk management does not mean sacrificing performance.
• Reynders, McVeigh leverages deep qualitative and quantitative research  to uncover hidden liabilities conventional analysis often misses.
• Hidden liabilities threaten business value: stranded assets, “forever” chemicals, microplastics, and unsustainable pricing can erode future earnings.
• Wall Street ESG strategies often leave investors exposed to unpriced risks in index-like portfolios.
• Sustainable companies are built to endure with strong balance sheets, resilient operations, and competitive advantages that weather market, technological, and environmental shifts.

Many investors think of sustainability as a feel-good initiative — something separate from the rigorous financial analysis that produces strong investment returns. We see it differently.

At its core, sustainable investing is risk management. It’s about recognizing long-term threats to business value that standard financial analysis often misses. From stranded assets in the fossil fuel industry and forever chemicals in consumer products to microplastics in apparel and unsustainable pricing policies at pharmaceutical firms, some liabilities aren’t obvious simply by looking at a company’s formal accounts. But they can jeopardize future earnings, erode competitive advantage, and trigger sudden write-offs.

Sustainable companies carry fewer liabilities and are built to endure. They navigate market swings, technological shifts, and environmental changes with resilience. Well-managed and strategically positioned, they offer products and services that benefit their customers, backed by strong balance sheets, a competitive edge, and a solid track record of long-term growth.

Good companies can make for great investments—sometimes spectacularly so. Equities in our global sustainable balanced composite fund, for example, returned 528% after fees from January 2006 to June 2025. The leading global index, the MSCI World Index, returned 363% over the same period. Disciplined sustainable investing outperformed by more than 150% during that same time. Past performance is no guarantee of future results, but it does show what prudent, disciplined sustainable investing can achieve.

Analyzing through the lens of sustainability is hard. That’s why few do it

So why don’t more fund managers pursue true sustainable investing? Because it’s difficult. It requires managers to step out of their traditional investing framework. They must assess an array of qualitative factors as well as quantitative data, and most firms are not willing to do that.

Many fund managers rely on third-party ESG scores or screening services rather than conducting their own research. And while these scores can be useful tools, without deeper analysis, they miss the nuances that separate a company that merely looks sustainable from one that truly is.

Even Benjamin Graham, who helped define modern security analysis, recognized the challenge of assessing qualitative factors. In the book Security Analysis, published in 1934, he acknowledged that evaluating a company’s qualitative aspects is difficult. But Wall Street seems to have interpreted that as a license to skip it. For decades, much of the market has done just that.

Know what you own and why you own it

Knowing what you own and why is the foundation of sustainable investing. It’s also the foundation of good investing. At Reynders, McVeigh, we rip through balance sheets and income statements during our quantitative analysis to understand companies down to their foundations. We check filings for opacity, track where revenues come from, and identify off-balance-sheet exposures.

During our qualitative research, we assess management’s integrity and commitment to sustainable practices. We talk to them about environmental risks, social impact, and governance structures, and examine their 10- and 15-year plans. Then we integrate those insights into our quantitative framework.

Consider two paper manufacturers on different rivers. Both produce chemical effluent during bleaching. One company hires lawyers to defend continued discharge. Earnings stay steady, and Wall Street sees no problem. The other invests millions in an enzymatic process to eliminate effluent entirely. Earnings drop that quarter, but the company has eliminated a long-term liability and improved its competitive position. We’d always choose the second company — the one reducing long-term risk and strengthening its long-term competitive position.

Sustainable investing has weathered some mighty storms

Markets have tested every investment philosophy over the past two decades, from the Great Financial Crisis to the COVID-19 pandemic. Through each period, our approach to sustainable investing has demonstrated its value.

During the pandemic, when stock markets around the world slumped, our portfolios reflected the discipline and durability that define our approach.

We weathered the Great Financial Crisis by limiting our exposure to banks and owning financial services firms with low-debt transactional businesses. Over-extended balance sheets and opaque revenue sources at many of the banks were signs those businesses were not sustainable.

Throughout the natural resources boom fueled by China’s rapid growth in the early 2000s, we disagreed with the common narrative that demand for oil was going to soar. Instead, we saw signs that the oil industry was in structural decline. Today the oil and gas sector represents only a fraction of what it did two decades ago.

Our sustainable investing approach directs capital to companies that deliver robust long-term growth. We invest in companies replacing aging water infrastructure, innovating in medical technology, automating industrial processes, and meeting the growing demand for healthier products. These companies have strong balance sheets, transparent operations, and competitive advantages that allow them to compound through market upheavals and deliver sustained returns over decades. We avoid fossil-fuel producers, over-leveraged lenders, and businesses exposed to product risks such as forever chemicals and microplastics. In the pharmaceutical and biotech space, we are equally discerning, favoring firms with genuine innovation over those dependent on price increases to drive earnings.

Sustainable investing doesn’t require investors to accept lower returns. It seeks to preserve and enhance long-term value by identifying risks that can erode business performance and by allocating capital to companies demonstrating sustainable practices.

Performance (as of June 30, 2025)

Important Disclosure
This blog post is for informational purposes only and should not be considered investment advice or a recommendation to buy or sell any security. Reynders, McVeigh Capital Management, LLC (“RMCM”) is a registered investment adviser. Registration with the U.S. Securities and Exchange Commission does not imply a certain level of skill or training. Commentary is provided for illustrative purposes and should not be relied upon as a forecast. Past performance is not indicative of future results. The views expressed are those of RMCM at the time of publication and may change without notice.

The performance information shown above represents past performance and does not guarantee future results. Investment returns and principal values will fluctuate, so investors’ shares, when redeemed, may be worth more or less than their original cost. Current performance may be higher or lower than that shown. The MSCI World Index (Net) is a free float–adjusted market capitalization weighted index designed to measure the equity market performance of developed markets.

RMCM integrates Environmental, Social, and Governance (“ESG”) criteria into its investment process as part of its commitment to social responsibility and ethical action. The use of ESG criteria may cause certain securities to be excluded for nonfinancial reasons, which may result in portfolios performing differently—either better or worse—than those not managed according to such principles.

All information is obtained from sources believed reliable, but accuracy and completeness cannot be guaranteed. RMCM assumes no obligation to update any information contained herein.